How the BBC lost the plot on executive pay, with devastating results for staff morale

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Former BBC producer Suzanne Franks, now a professor of journalism at City University, casts a critical eye over the ongoing furore at the BBC around executive pay and pay-offs.

The saga of the monster pay-offs was one of the most toe-curling episodes of the BBC’s recent woes. It highlighted the problematic relationship between the BBC Trust and the management, inherent in the way the Trust was established by the previous government and it showed up once again the frequently irresolvable tensions of private enterprise versus public sector. But worse than that was the debilitating effect it had upon internal morale at a critical time for the corporation.

In many ways this all goes back to the days of John Birt in the late 1980s. He arrived at the BBC from the well-heeled environment of London Weekend Television with expectations about executive remuneration plus associated perks.

All previous director generals (barring Lord Reith) had been insiders who had risen up within the culture of the corporation. In the place Birt left behind, senior management were about to reap handsome rewards from golden handcuffs and share options – benefits he had relinquished in his journey to Broadcasting House. So, against this background, Birt (and the BBC governors) viewed it as acceptable that he should not have to join the corporation’s payroll but could, instead, be remunerated in a complicated way as a freelance through a private company.

When these unorthodox arrangements came to light after some years there was a rapid readjustment and Birt was forced to become a staff member of the BBC subject to PAYE like lesser mortals – but the outcome was that his pay proportionally was increased so that he did not lose out because of the increased tax liability.

This was the beginning of the collision of private sector and public service expectations. When Alasdair Milne was DG in the 1980s he was earning the equivalent in today’s money of just over £200,000.

From Birt onwards, the salaries of the upper echelons were escalating higher into the stratosphere, on the basis that market value had to be considered in attracting such senior talent.

The whole question of remuneration was becoming more complicated.

Eye-watering salaries for lifers

Lifetime BBC managers whose roles were not translatable far outside the corporation were being paid eye-watering salaries on the basis that this was what the market required to retain their talents. But it was never really explained where exactly the temptations might come from to lure away their services.

As a result of these changes a substantial cadre of highly paid managers started to emerge within the BBC. The packages included perks such as private health insurance and up to 30% bonus payments and were being sanctioned by non-executives and sometimes executives more accustomed to private sector remuneration practices.

When Chris Patten became chair of the BBC Trust he admits to have been shocked at the numbers of senior highly paid managers, and vocally complained that this needed to be addressed. The only salary that the Trust has direct control over is that of the director-general. It is an open secret that there was little love lost between Mark Thompson and Lord Patten. Once Thompson (whose total package in 2008/9 came to £834,000) departed, the DG salary was radically cut back. However, for other managers the process was more clumsy.

There had been an attempt to slim down the manager class – though how it ever grew to such extraordinary proportions full of people with incomprehensible titles has still not been properly explained. But once the decision had been taken to axe swathes of senior managers the argument went that in order to do this as quickly as possible the departing staff were entitled to be given handsome rewards.

In some cases individuals received rather more even than their contractual entitlements, both paid off to the end of their contract and also given redundancy – once again a double whammy to the licence payer.

The National Audit Office revealed that the BBC had paid £2m more than it was contractually obliged to 22 former bosses between 2009-2012 (around £1.4m in lieu of notice which it was not obliged to pay and a further £510,000 on ‘discretionary payments’). Altogether over those three years, 150 departing executives were paid £25m in compensation settlements and ten of the most senior executives accounted for more than £5m of that sum.

The NAO said the BBC not only operated an excessively generous policy on severance payments, but had ‘exceeded contractual requirements’ in doing so.

In a sample, one in four payments was found to have been in excess of contractual requirements.

Several managers left with large pay-outs even though they went almost immediately into other jobs. In fact, some had even lined up a new appointment before they parted from Broadcasting House – but only one of them, Roly Keating, who had been director of archive content, was shamed enough to return the part of the payment deemed excessive, upon starting his new job at the British Library.

Others quietly pocketed the takings, sometimes far higher than Keating’s reward, and a number of them then moved swiftly on to roles that were also better remunerated than his. A few even continued to receive car allowances, consultancy fees and new IT courtesy of the BBC, to cushion the blow.

John Smith, who headed up the corporation's commercial wing BBC Worldwide, received a total remuneration in his final year (2012/13) of £1,396,000. Despite going on to a new job as chief operating officer of Burberry this included six months’ notice in lieu, at £244,000. His accrued pension pot when he left totalled around £5m. In another case which came under scrutiny from the Public Accounts Committee, Sharon Baylay, the BBC marketing director who departed in 2011, was awarded a package of almost £390,000 – yet she had been at the corporation less than two years when this was being negotiated, so it was hardly a case of having to compensate a long-term employee.

Project Silver

The most high profile case was Mark Byford – a BBC lifer ending up as Deputy DG – who left with a near £1m pay-off, plus one of the largest ever public sector pension pots at £3.4m. Byford was being paid a salary of £474,500 in 2010. When it was time to leave he was awarded a pay-off totaling £949,000 – including pay in lieu of notice.

In questioning by Public Accounts Committee in September 2013 it was suggested that Byford was only entitled to £500,000. Mark Thompson revealed in his evidence that he was awarded nearly twice that partly to make sure Byford "kept focus" during the period of the Olympics.

According to the internal email discussions, which were later revealed, the BBC (i.e. the licence fee payers) got off lightly.

Apparently Byford could have argued for a payment totaling up to £2.5m because of his 32 years service with the BBC.

Those responsible for these decisions say that in the grand scheme of a £3bn income these high level pay-offs amounted to chicken feed – no more than a few million. And it had to be achieved quickly to downscale the overall swollen numbers of managers, so it was worth overpaying. Yet this understates not only the impact this issue has had upon politicians and licence fee payers but the effect upon internal BBC attitudes.

When cameramen, designers, engineers or many other are "let go" after 30 years of service they are unlikely to see anything approaching such levels of generosity.

The anger caused by the scale of these senior level pay-offs became a running sore inside the BBC.

The succession of pay-offs initially attracted relatively little attention and the story might have gone quietly away. Only after the brief tenure of George Entwistle as DG in 2012 did they really come into wider public scrutiny. Entwistle was legally entitled to a contractual payment negotiated after his rapid "resignation" in autumn 2012.

Tony Hall is employed on roughly half of Mark Thompson’s salary (and half the notice period of Entwistle) although he seems well able to keep himself focused on this basis. One of his firm pronouncements has been to announce a cap on any future pay-offs at £150,000 and associated benefits such as private health care payment will no longer be available to incoming senior managers.

Lord Hall is determined to get rid of what he calls the "officer class mentality" within the BBC. But still in the background as the BBC gears up for the next charter renewal there are the rumblings of this same tension. As one observer put it, the organisation is caught between trying to compete within a digital global marketplace and having to behave like a department of Whitehall.

The former BBC governor and crime writer PD James was a guest editor of Radio 4’s Today programme at the end of 2009 and observed that the BBC had behaved "like a very large and unwieldy ship… recruiting more and more officers, all very comfortably cabined, usually at salaries far greater than their predecessors enjoyed and with a crew somewhat discontented". Let us hope that Tony Hall will still be able to turn the vessel around successfully.

This feature is abridged from Is the BBC in Crisis? A collection of essays published by John Mair, Richard Tait and Richard Lance Keeble and published by Abramis.